LONDON (Labour Buzz) - Conservatives have long resisted taxing the rich, not least because it would mean taxing themselves. However, a new study from Warwick University has confirmed what Labour said all along: taxing the rich works.
According to the research, a one-off 5% tax on people with assets worth more than £500,000 would raise £262bn. The figures would go some way to repairing the country’s COVID ravaged finances and would also help to tax one of the few groups to have benefited from the crisis.
Billionaires have seen their net fortunes hit record highs during the pandemic. Data released by Swiss bank UBS found that the richest saw their net worth climb by 27.5% to $10.2trillion between April and July this year.
That number was up on the 2017 high and came about largely due to rising share prices. While many companies have suffered during the pandemic, the likes of Amazon have seen their value soar. Jeff Bezos became the first person ever to be worth more than $200bn in August.
Desirable or deliverable
Wealth taxes have been a hot topic for much of the year. With funding by the Economic Social Research Centre Warwick University set out to see if it was deliverable. They commissioned research from more than 50 tax experts including the OECD, lawyers, policymakers and think tanks. The answer to both questions, they found, is a resounding ‘yes’.
“A one-off wealth tax would work, raise significant revenue, and be fairer and more efficient than the alternatives,” said Andy Summers, associate professor at the LSE, one of report’s three authors.
The report found that applying a tax to all of a person’s net assets, excluding debt and mortgages would raise £262bn. Approximately eight million people including recent emigrants and non-doms would be liable to pay.
In practical terms, individuals could pay the tax in five instalments based on the market share of their assets at a given moment. Spouses or partners could pool their allowances meaning the tax would only affect households with more than £1million in assets.
For those worried about the plight of poor single millionaires, the study also looked at raising the bar to £2million for households. They found it would still bring in £80bn.
Those with high-value assets, but little cash could be given more time to pay under certain arrangements. They also suggested pension wealth could be paid out of a pension lump sum to avoid any liquidity difficulties.
The report also found that a one-off tax would be more effective than an annual charge which would require more frequent evaluations and lead to widespread avoidance.
Left-wing Labour MPs have backed the proposals while Sir Keir Starmer has said the government should look at a wealth tax. However, he has since backtracked saying he does not support tax rises while the economy is so weak.
Meanwhile, Gus O’Donnell, former head of the civil service, who took part in the research praised the report. It was the first examination of a wealth tax for 50 years, he said.
Will they pay?
Others will question the fairness of taxing the wealthy or the workability of the solution. Such a tax might be subject to widespread avoidance. However, report author Emma Chamberlain who works as a barrister at Pump tax chambers said the idea that the wealthy would not want to pay is false.
“People sometimes say the super-rich won’t pay,” she said. “My experience is they are happy to pay, as long as the tax is simple to operate, affordable and they don’t feel they are being singled out with penal rates.”
Critics of the scheme will also have to answer one important question: if not this, what’s the alternative?
According to the Office of Budgetary Responsibility, the pandemic will leave an annual gap in public finances of £30bn over the next decade. The Government has so far spent £280bn on measures to fight COVID 19.
This doesn’t take into account the impact of lockdown on the economy or the billions of experts say will be lost thanks to Brexit.
Someone will have to pay for it and the government has a good idea who: you. They’ve already frozen pay for public sector workers and warned of tough choices in the years ahead. As with the 2008 crash that’s code for the government telling us all to cough up, (well most of us perhaps.)
After 2008 the rich and the people who had caused the crisis were rewarded with tax cuts while we got austerity. Their incomes surged while ours stagnated. The number of superyachts rose almost as quickly as the number of food banks.
The country can’t afford a repeat. To raise a similar amount to the £262bn promised by the wealth tax the government would have to raise the basic rate of income tax by 9p or VAT by 6p. Sunak has refused to rule out rises to VAT or income tax but has been cool on talk of a wealth tax.
“I’m not going to be drawn on future fiscal policy,” he said.
Nevertheless, the reality is that taxes will go up one way or another. Many within the Tory party are hostile to taxing wealth in principle. With Britain looking to attract investment post Brexit, they argue against hoisting taxes on the rich.
However, for a Chancellor with his eyes on Number 10, a wealth tax holds a certain appeal. According to YouGov, 61% of people would support a wealth tax on assets over £750,000. Another YouGov poll found that only 9% of Britons would support a return to normal after lockdown. Sunak is popular and he wants to stay that way. Taxing ordinary people, and slashing support for the most vulnerable to pay for his COVID splurge is not the way to do it.
The party might not like it. His donors might hate it. And he might even be worried about the impact on his own pocket. But Sunak is right in some respects. The recovery from COVID 19 will lead to tough choices. It’s only right that those choices are made by people with the broadest backs, many of which have directly profited from the crisis.
(Written by Tom Cropper, Edited by Klaudia Fior)